TAX NEWS - JUNE 2010

US Tax: IRS contractor study raising big concerns

Observers feel certain a new definition will emerge; businesses, contractors will use flexibility during tough time

The Internal Revenue Service (IRS) has launched a hard look at how companies count contractors and full-time employees, prompting business advisers to urge companies to take a look before the revenue service does.

"I'm guessing the use of independent contractors and contingent workers has expanded a lot in the last 25 years," said Mike Abcarian, an employment law attorney at Fisher & Phillips in Dallas. "For the IRS this is an issue of a lot of money not finding its way to the federal government."

The study, which began in March, will involve three years of intensive audits of businesses and workers, and will be used to help the IRS determine the difference between how much tax it collects and how much goes unpaid, said Clay Sanford, an IRS spokesman.

The study will also be used to look for tax cheats on both sides of work arrangements, Sanford said.